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JPMorgan Hunkers Down

Yesterday's dividend cut does make sense.

Just days after rumors flew that JPMorgan Chase(NYSE:JPM)wanted to repay its TARP funds -- an indication seen by some as proof that it was amply capitalized -- it goes and slashes its dividend by 87% in an attempt to, yep, save capital. What gives?

Unlike the dividend cuts by Citigroup(NYSE:C) or Bank of America(NYSE:BAC), JPMorgan's cut is more practical than desperate. As CEO Jamie Dimon put it, "The decision to [cut the dividend and] retain additional common equity does ... help position our company to repay TARP as soon as is prudent -- and still maintain a strong capital position."

In other words, ax the dividend -- which will bolster common equity by about $5 billion a year -- and get the Treasury, Congress, and the media's nonstop tar-and-feathering off its back as soon as possible. While acknowledging the dismal state of the banking industry, Dimon's moves look far more strategic than frantic.

For investors, the prospect of repaying Troubled Asset Relief Program funds and going back to business as usual surely outweighs the $0.38 per-share dividend the company had been paying. The dividend had equated to a nice 7.8% yield, but let's be honest: Investors' main concern these days is whether a bank will be able to open its doors the next morning. The allure of a fat dividend loses its luster when shares can fall 50% in the time it takes to log on to your brokerage account. Not surprisingly, shares hardly budged this morning -- probably a balanced reflection of lost income against the prospect of a TARP-less future.

With JPMorgan ditching the dividend game, the only major bank holding onto a significant payout is Wells Fargo(NYSE:WFC). How long will that last? I wouldn't bet on it too much longer. For one, Wells Fargo's yield is approaching 12%, meaning the market almost certainly expects it to be slashed. Second, Wells Fargo has been among a handful of banks insisting that it doesn't need TARP capital to survive. If JPMorgan's plan to preserve capital and shed its TARP funds proves successful, I wouldn't be surprised to see Wells Fargo venture down the same path.